072323- HOME SOLUTIONS PODCAST

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Episode Transcript

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Buying a home and selling a homeshouldn't be stressful. Renters, homeowners and
investors in southern Arizona worked with theWin three team powered by e esp Reality
because they match buyers with sellers likethe e harmony of real estate buying or
selling. This is where you'll findwhat you are looking for. This is
Home Solutions on K and ST.It's the Win three team powered by exp

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Reality. Now, Bob zach Meyersbecause I'm going on Late This Place show,
Good morning, and welcome to theshow. I'm Bob zach Meyer of
the ESP Realty and I'm joined byJerry Suns across Country Markets. How are
you, Jerry, I'm doing great, Bob. All right, we have

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a lot of work to do today. We've got five articles to talk about.
And the first one is there isa new bill that was introduced this
week by Senator John Thune of SouthDakota and Jerry Moran of Kansas, and
they are naming this bill the HousingSupply Expansion Act. And this is a

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measure that would address the shortage ofaffordable housing options across the United States.
And basically, there was a actcalled the Davis Bacon Act in nineteen thirty
and it was a nineteen thirties eralabor law that basically to protect laborers on

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working on jobs. They came upwith, you have to comply with this
act and pay these people X numberof dollars. Well, we know locally,
I mean like Pulty brought in athousand Mexican immigrants, you know,
carpenters and people because they just couldn'tget enough people to build their homes here.
And so this act. What's interestingabout it is and we'll see,

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you know, they introduced the bill, we'll see if it passes, and
even if it did pass, howlong does it take for it to get
to Main Street. But they actuallysay that by getting rid of all this
oversight and not necessarily you know,by shorting people on what you're paying them
to build houses, but by allthe oversight that and government agencies that are

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involved in it, they say thatthe cost will be at the savings would
be at least twenty seven thousand dollarsper nine hundred square foot apartment. Yeah,
that's a staggering number. Twenty seventhousand. That's adding thirty dollars a
foot onto a house just for thisoversight of the government. So now it's

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kind of necessary. I mean,the houses have gotten so out of reach
for so many people. And ifthey put incentives in there for the builders,
Hey, if you build these lowerincome properties, we won't make you
comply with all this bill. Andyou're going to have twenty seven extra thousand
dollars on every nine hundred square footapartment. Just say you're building one hundred

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unit apartment complex, You're gonna savetwenty seven thousand times one hundred. Was
that two point seven million, No, it's it's a big number. And
and you know, basically, youknow, it's saying that, hey,
we're going to help reduce your youryour overhead by reducing the cost of labor,
which is the biggest you know,budget item in every company's you know,

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uh, you know, uh,profit and loss. And people are
the most expensive commodity for sure,and so by reducing that cost. It's
an interesting thought to see what Iwant to read more into this because that
is a um, you know,it doesn't solve our problem today, but
could it solve Could could this getmore you know, quality home housing at

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a lesser price on the market faster? I mean, if it does,
you know, maybe there's something tothat. Well, you know this act,
it basically says the improper application ofthe Davis Bacon wage rates is a
necessary barrier to the modernization and developmentof multifamily housing. And this bill will

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help reduce the administrative burden of complexityfor residential housing projects. So hopefully that
will help and create more low costrental properties for people, because it seems
like it's aimed at apartment complexes,so they're not looking at for single family
homes or you know, multi famers. Don't see anybody going back to build

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small single family homes anymore. Ithink the answer to that is to get
container homes and you've already got asteel structure and just finish it out in
the inside. That is the answerto low cost homes. And I saw
in the news maybe last week thatthey built one out of recycled plastic or
something, and they're trying it outhere in Tucson. But it just makes

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so much sense. We buy morestuff from China than they buy from US,
and there's a glut of containers rightright, and you know these things
are steel. Tremites aren't going toeat through. So basically, I mean,
you get some spray foam and firstfloat out on the outside, in
on the inside, and and makeit very you know, uh well insulated.

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Turned down some sheet rock forty feetlong, and even if you put
two together, and I actually sawa model of one of these, and
they staggered him. They offset himby about ten feet and instead of putting
two forty by eight foot containers togetherto make a forty by sixteen, they
staggered it. And they maybe haveone in sticking out ten feet longer than

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the other. And then of coursethe other side, that opposite unit is
sticking out. But it really addedsome character, gave porches, you know,
and it was a really cool design. I did a take off a
few years ago with a twenty footcontainer that I was going to make a
little one bedroom unit out of.I came up with a two two of

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those together, and I could dothat thing for fifteen thousand dollars. That's
what my cost was too to putit together. And that's everything, the
drywall inside, that was the whole, the whole thing. And and again
when when you're only eight eight feetwide and a sheet of sheet rocks eight
feet wide, yeah, and ifit's eight feet tall, it's four by

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eight, so you got two sheetsof sheet rock on the end and two
sheets on the other end. Andthen it's only you know, forty feet
long, so that's five sheets timestwo, so ten on each side.
So I mean it's what twenty eightsheets of sheet rock, and of course
you use spray foam and and uhfirre it out with with um you know,

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three quarter inch you know, offof the ribs because those corrugated metal,
the steel, it's corrugated and itcomes out and in and out and
in, and then you would justspray on that foam and then rake it
down and it would be extremely energyefficient. It would never end cost effective,
yep. I mean, it wouldlast longer than any bus willow being

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solid steel. So anyway, that'sa hopefully we'll keep looking at more ways
to get more affordable housing because that'sdefinitely something we need, yeah, you
know, but a nationwide. Onething I have heard is when you look
at the amount of permits that allyou know, developers all kind of go

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in they of course, they followthe money and they follow the need.
And so there was when you lookat the number of permits to build multifamily
not just locally but nationally at all. Like four years ago, everyone rushed
to build it. And so nowwe're having this all these projects that have
come to completion, and so nowthere's lots of multifamily whenever, we're going

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to be oversaturated with apartment units,and in some cities I think they're actually
there, and so there's worries andthey were naming off different cities around the
US that there's so many apartments thatare just now coming online, right,
that's going to then obviously start havinga big impact on rents, sure,
because there will be more supply thanthere is demand and that will bring rents

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lower and sure, and a lotof people want to move into the new
fancy, you know building, andthe one that are that's five, ten,
twenty years old, they're just goingto have to reduce their rents to
drive demand to those to those units. So, uh, it seems that
maybe we're getting a bit oversaturated onmultifamily. And I love this idea though,

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of how do we create you know, single family homes that for for
lower income families, that just thinkingoutside the box because there's so many lots
single family lots or or or lotswithin Tucson and within so many municipalities that
we could use those lots to buildkind of a I don't know what you

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want to call it. It's likea small almost like townhouses in a way,
get a little cluster of houses thatcould there's a real need um that
that would fill that need. SoJerry, you know, if they change
the zoning code and they allow youknow, granny flats or or you know,

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yeah, accessory accessory dwelling units.So if they would do that,
and you could just come set ashipping container that's stuckled on the outside and
looks like the house that it's sittingbeside. That's very inoffensive and the whole
thing can be run on thirty ampsof power, so it's less than getting
a tesla and putting it in yourgarage so where when it attacks the grid

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beyond, you know what it canhandle, and especially if you make it
energy efficient. I'll tell you rightnow, in Tucson, we have five
homes listed for sale under two hundredthousand dollars five So if you could start
standing these up and you don't evenneed to buy the land, everybody could
put one on their lot and probablyrent it out for six hundred dollars a
month, which be super cheap rentfor somebody, and it's six hundred dollars

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for someone else that bought it.And let's just say that, you know
they can, they can. Whatif it costs thirty thousand do and you're
making six hundred dollars a month onit, how long does it take to
pay it back? Fifty months?That's less than five years. That's a
little over four years. There's actuallya big movement in two Sons already doing
just that. And the problem thatthey've run into they've actually the city has

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gotten behind it, the mayor's gottenbehind it of building a tous on in
different zoning areas that normally would nothave allowed for that. Right, so
it's like, okay, so it'spast the city where where they will allow
you to build these units. Here'sthe problem. Everyone's got their three percent
mortgage rate and now it costs onehundred grand to build a unit if we're

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building it, you know the traditionalway, sure and or fifty thousand or
seventy thousand, whatever the number is. It's a big number, and people
have to then, but no onewants to do a cash out reefinance because
they don't want to go to aseven percent rate. They want to keep
their three percent rate or so they'reforced to do an equity line of credit
at nine or ten percent, right, And that's the stumbling block for that

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right now, what you just describedis actually the city if two sons are
already said, well we'll green lightit, we're there. It's just now,
how do you finance those projects?And that's the issue, and we're
going to talk a lot about thatduring the show. I've just specifically the
struggles that so many of us have. We've got this great ultra low interest

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rate, how do you finance thatproject? Sure? And you know,
the city owns a lot of landthat just idle land. And you know,
as you're seeing warehouses close and commercialproperties close, and actually um Pepper
Viner has been building houses on oldschools and making whole little subdivisions, you

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know, with maybe forty fifty houseson what used to be a schoolyard.
What if the city kept those andand made them a small little home community
out of it. It's funny.I was driving by my old middle school
towns in high school and and itwas you know, they've turned it into
medical facilities, so it's small youknow office uh complexes. So you're right,

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you have to just obviously reinvent thesethis these uh these you know,
these situations for times that need it, and we definitely need you know,
uh, cost effective housing. Andwhen you look at what the city is
willing to pay, you know,for people on Section eight, wouldn't it
make a better investment to buy theunits and buy and buy the hundred and

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set them on your own property andthen instead of paying a landlord to be
the owner of this property, youown the property and and it's steel,
they're not going to wreck steal.Yeah. So anyway, we are coming
up on a break. This isTucson Home Solutions. I'm Bob Zachmeyer of
XP Realty. You can reach mefive two zero three one four sold and

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with Jerry's sunt of Cross Country Mortgageand Jerry your telephone number five two O
three seven zero nine to five sevensix. All Right, we've got a
lot more news to cover. We'llbe right back, So thanks for listening
to Home Solutions on K and ST. Good morning, and welcome back.
I'm Bob zach Meyer of EXP Realty. I'm joined by Jerry Sun to Cross
Country Mortgage and we are talking aboutthe real estate news that's happening right now.

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But before we go there, Iwant to talk with Jerry what happened
to interest rates this week and whatis driving some of the things that are
going on. Well, yeah,the only thing driving rates is inflation.
That is the bottom line, andso rates for you know, last week
we have that great inflation data,the CPI Consumer Price Index came out and

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it came out much better than expected, and so we thought maybe we've seen
the highest rates of the year,and I do think we have. But
then you know, this week,new data comes out and it was all
pretty much in line except for youwhen you started on Thursday. You start
reading of you know, rates kindof ticked up on Thursday, and it's

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like, well, what was thecause? Okay, so jobless cames where
we're a little bit better than expected, but really it had to boil down
to issues outside of our you know, the US, and had to do
with the Ukraine and the war inUkraine and the fact of now that Russia
is now I guess said and they'reout of the the the agreement, the

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grains agreement that they had, andso there's there's now a lot of worry
that Russia could be bombing grain shipsthat feed Egypt, Africa and in Europe,
which could cause food prices to spikearound the world and if that were
to happened. So so then mortgagerates, you know, uh jumped up
simply because of the worry that youknow, there could be a inflation could

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still be you know, rear itshead in ways we didn't expect a week
ago. So they're having trouble gettinggrain out of Ukraine, not yet,
but there's the threat, right rightright, But then wouldn't that drive exports
of US grain higher? I don'tknow, I mean, it's I was
just sharing it was affecting Egypt,and Europe and U Africa were the three

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three continents they were talking about.So but that just goes to show you
that, you know, an internationalworld and how it effects our local economy.
And but so mortgage rates ticked upa little bit. Um that was
a bit of a surprise. Idon't think anyone really expected to see rates
move higher, especially we're in thethis is the time of year between now

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and September when you know, itgets kind of sleepy. Uh. For
for for mortgage RAITs, they don'ttypically move around a lot in the summer.
Um. You know, a lotof the traders are now on vacation
and you know and all that,so um, but no, but mortgage
rates are sitting in the high sixes. Uh. And what the big I
guess takeaway news is that where ratesgoing the rest of the year. And

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everything that I'm reading is that theyare going to be sitting in the on
a good case, the mid sixes, you know, but more than likely
high sixes to low sevens throughout theend of this year. So that's the
bad news. But then the goodnews is what's going to happen in twenty
twenty four Once the Fed announces thatthey're done raising interest rates and they're gonna

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go, you know, they're gonnaprobably go again. It's baked in the
cake that they're gonna go in July. Then will they raise another twenty five
basis points in September or November isthe wild card. But once they're done
there, the consensus now is thatthat will be the end and the feedble
announced are done raising rates, andat that point you're going to start to

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see mortgage rates come down, andthat they're expected to be in the mid
five in twenty twenty four and intwenty twenty five they may be in the
fours. Well, so this isa welcome reprieve from you know this,
these rates we've seen for the lastyear and a half, and you know
now, again, is it somethingthat you can guarantee is a guaranteed rates

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are gonna fall? No, becausethere's too many biohomy You need to be
able to afford it and not bankon someday it's going to have a cheaper
payment. Absolutely, But if theand again anything, everything that I am
reading from all sources is that ratesare expected to come down and come down
dramatically within the next twelve months.So help is on the way. Sure,

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well, right now you've got allthese people that everybody that could went
out and refinancing got the cheapest ratethey possibly could. Most people have mortgages
in the threes. Yes, Andso this article came out on July eighteenth.
Homes are now changing hands at theslowest pace in over a decade.
Another post pandemic record has just beenset. Just one point four percent of

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homes have changed hands during the firstsix months of this year. So if
all the homes in the United States, only one point four percent have been
sold. So if you double that, we're on track. They have two
point eight percent of the homes sold. So what's normal. Basically in twenty

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nineteen, we had nineteen homes outof every one thousand selling, and right
now we have fourteen houses out ofevery one thousand selling, so at this
point half of the year through andthis is data through the end of June.
So in twenty eighteen, Freddiemack estimatedabout two point five million more houses

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needed to be built to meet thedemand of this market. And now you
have all the people that aren't lettinggo of the inventory because they don't want
to let go of the interest ratethat they have. So not only are
we not producing enough new homes,we got nobody selling their houses. Yeah,
and that's what the shortage is,and that's why prices are going higher
again. So you know two thingsthere the locked in effect that we're experiencing

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where people feel they cannot sell theirhouse because of the interest rate that they
happen right that is this the firsttime in history that that has happened where
people, you know, people havefelt locked in in the past before most
recently two thousand and eight, twothou and I value they were locked in
because they kind of their house wasn'tworth as much as they owned. And

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even if they let's say they stillhad equity in their house and they could
sell it, it wasn't a shortsale. It's like, Wow, my
house lost value. I'm going tostay here because and part of it was
fear. Part of it was theconcern of I don't want to you know.
I think everyone was just worried aboutwhere the world was gonna go.
Sure, but now we have aninteresting thing where someone may be in their
house. They may not like wherethey live, they don't they want to

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move, but they got a threepercent rate, right, so they won't.
They won't make that step to move. So what will it take?
Where where do rates need to go, or what are the what needs to
happen to get people to make thatmind shift to move. And I think
that what I'm hearing and why twentytwenty five is expect to be such a
banner year for real estate locally andnationally, is that if rates come in

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the force, that's close enough wherepeople will say, Okay, I'm willing
to give up my three tree toget a form, but not to get
a seven exactly. And I thinkthat's why, you know, we we
with rates coming down in the nextyear. That will add more inventory and
uh and it will allow people toyou know, finally be able to sell

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their house. The other piece ofthe pie is that you know, we
talk about this lack of inventory.This is a problem we will have for
five ten years exactly. Builders.We touched on it on the article in
twenty eighteen, we weren't building enoughhomesn and we were two and a half
million homes short then. And thenwhat happened during the pandemic. You had
the interest rates go down into thetwos and people that never would have been

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in the housing market were able tobuy homes for this little snapshot in time.
Yes, so, and then aton of people went out in bodification
homes because the interest rates were soloand at the time you could get a
vacation home for the same interest ratethat you paid on your primary residence.
And now that's been changed. Butthen, and that's not a lot of
houses off the market. And buildersduring that time, even though they were

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allowed to build because they were outside, and the COVID restrictions were lifted,
but how many people were not.Oh, you had to get tested and
if ope, you have a cough, you're not showing up to work.
And that the the the chain ofbecause you know, building a house is
very systematic, right, you know, you have to have to have this
crew or this subcontractor here this day, and then the next subcontractor the next

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day. And when a subcontractor getssick, it pushes the whole schedule everybody.
And so they couldn't build in massthe way the opportunity was there,
which would have been fantastic. Andnow with rates higher, builders are building,
but you know, I think they'realso they're bullish. They obviously have
a lot of confidence in the future, but I don't think they're building a
lot of spec homes. The otherthing builders have been doing, which and

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I talked frequently about, is theybuild communities right for rent yep. One
hundred percent of the community is goingto be rented and not sold to the
public. And actually that for abuilder makes sense. They can build them
in order without some body coming inand picking colors. And I don't like
this, and I don't like thatand they just build them and this is
what it is, and they rentthem all out and then once they're fully

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rented, they sell off the portfolioof a fully rented subdivision and wall streets
hungry, and we're going to seemore of that. So there's just a
lot of people that can't afford toown right now. And then, you
know, if we go back,we got to back up a long way.
But two thousand and nine is wherethe housing shortage started. And it
started with the company called Airbnb andvacation rental owner VRBO, and they started

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taking houses off the market. Ifyou back up even further, all the
hedge funds that were buying up thehouses after the Great Recession, they were
getting them for a song, andyou got American homes for rent was the
biggest one in Tucson. But Blackstoneand I mean everybody thought, when prices
come back, they're gonna they doubledtheir money. They're gonna sell off all

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these homes and we'll be back tonormal. Not only did they not sell
them off, they securitize the portfoliothey had and more. But what's interesting
is if rents go down, andsome communities they are going down last month
was the first time since two thousandand eight that the Blackstone Group sold more
houses than they bought, so they'veactually lost a little bit of inventory.

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It's the first time since oh eight. But between those two, Airbnb has
two million rental properties nationwide or worldwide, I should say, in about one
point three million in the United States, and when you throw on RBO and
all these others, there's easily twomillion out there, and a whole bunch
of people I know don't use Airbnbanymore. They have enough clientele and repeat

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clients that they actually just market themthemselves, right right. But between the
hedge funds taking off all that inventoryand then the Airbnb people taking off inventory,
then COVID hits and you got allthese loan purchasers that never could have
bought, but they did buy,and then everybody else at bodification homes because
the interest rates are so stupid low, it just depleted all the inventory.

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And then when the rates started goingup, the market just slammed on the
brakes and no, no, no, I'm gonna wait for it to go
down. And now you're starting tosee a lot of people say, you
know what, I don't think it'sever going down, or if it does,
the prices aren't going down, becauseI don't think prices are going down
yep. So, and I actuallyhave an article to address that this week.
But the bottom line is the fewestpeople in over ten years are selling

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houses right now. The turnover thepeople letting go in their home and selling
it is the lowest it's been inover a decade. And the single family
homes are sixteen of every one thousandsingle family home sold in the first half
of this year. That's down fromtwenty four So that number I coorted earlier

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was all homes, town homes,condos, manufactured homes. Single family homes
are basically one third less selling thanthey were in twenty nineteen before COVID.
So we are coming up on abreak. This is Tucson Home Solutions on
KNST. I'm Bob Zachmeyer of XPRealty. You can reach me five to
zero three one four sold and JerrySunt five two oh three to seven nine

(25:12):
five seven six. We'll be rightback. Thanks for listening, Good morning,
and welcome back. I'm Bob Zachmeyerof XP Realty and I'm joined by
Jerry Sunt of Cross Country mortgage,and we are talking about some news that's
interesting. There is a new billthat came out. It hasn't passed yet,
but it has been proposed. Onthis news article came out on July

(25:33):
eighteenth. Legislation introduced to curb predatorypractices in the single family home market.
So it's I think that would bea little miss eat it exactly. So
predatory practice, what is that?That sounds like somebody's preying on someone stealing
your equity and taking advantage of ahomeowner. So it sounds like, oh,
they're going after wholesalers that have nointention of buying that home and they're

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buying it for sixty cents on thedollar and turning around making fifty thousand dollars
on the sale. Sometimes they juststole all this person's equity because they were
uneducated. That is not what thebill is. The Stop Predatory Investing Act
would prohibit an investor who acquires fiftyor more single family rental homes from deducting
the interest and depreciation on those properties. You've just taken out all of the

(26:22):
mom and pops. Yeah, Imean that's not Hedge funds. Hedge funds
have more than fifty but big investors, and let's talk about that, Jerry.
So people that can't afford home,if there isn't a rental property,
then they're going to live in atent. Right. So these people are
the cleaner because most of the time, when someone vacates a property, it
needs to be rehabbed. They needto replace carpet, they need to paint

(26:45):
the So when someone leaves, Imean you are over there for a month,
you've lost a month of income.On most rental properties, if you
lose a month of income, youlost your profit for the entire year.
So the whole benefit for owning thatrental property is that you can deduct it
on taxes, you can depreciate it, and you can offset the rent with
the interest that you paid on theloan. Especially in today's market, rents

(27:07):
don't make sense in Tussund right now. I mean, I was a landlord
for thirty nine years and I usedto buy properties and I could make the
one percent rule all day long.Let's just say it's one hundred thousand dollar
property. At that property rents forone percent a month, which is one
thousand dollars. I can find propertieslike that all over the place well right
now, home in Tucson, you'rehard pressed to find a three hundred thousand

(27:30):
dollars home. As a matter offact, in our market right now,
we have one hundred and fifty onehouses under three hundred thousand dollars one million,
seventy thousand people and one hundred andfifty one houses under three hundred thousand.
So now you go buy this strainera thousand dollars home, and let's
say they get a loan from you, and you require what twenty percent twenty

(27:51):
five percent? I mean you canget away with fifteen, but then you're
paying a lot of points and feesand everything else, and the rate and
the mortgage insurances is expensive. Okay, so percent down train a thousand dollars
home, So that's sixty thousand.So you're going to borrow two forty and
then you're rent it's going to bewhat sixteen hundred dollars and you paid three

(28:11):
hundred for that house. If you'relooking at a mortgage rade at seven and
a half percent right there, rightthe one percent rule doesn't even come close.
I mean, you're going to havea hard time cash flowing because not
only do you have the mortgage,which is just principal and interest. You've
got the taxes, you've got theinsurance. In some cases you have has,
you always have repairs, and youcan count on vacancy. At some
point you're not going to get anyand come off of that property. So

(28:33):
when you factor all those things together, even on a paid off home,
the average landlord is lucky if theyget sixty five percent of the gross rent
because there's all the other hands inthe cookie jar. You know, the
tax man is in there, theinsurance agents in there, you know,
everybody getting a piece of that.So basically, it makes no sense to
purchase a home at today's prices andthe people that have them now they're saying,

(28:56):
you can't deduct them anymore. Willthat cause that landlord to sell that
house? Yes, Well that freeup homes for sale for people that want
to buy that home and have aplace to live. Yes, it it'll
solve one problem, but it willcause another. It's going to create a
shortage of rental properties. Right,good things about it. Yes, it
will create inventory because the homeowners thatcan't deduct the interest or depreciate their property

(29:19):
anymore are going to sell. Ijust what I don't. What disturbs me
about this is that you're changing therules of the games. And again,
the institutional investors is one category,but the mom and pops and you and
I both know a good number ofpeople in Tucson that own fifty units sure
and they were a good friend wasone hundred, and they have spent you

(29:41):
know, years building their business thatway, being very strategic and building an
amazing portfolio. And to turn aroundand change the game to say now that
that's not going to make any moneyfor you, because they're making all their
money from Yes, it's rent,but then it's also that depreciation and be
able to write off the interest iswhat makes to attractive, and it changes
the rules halfway through. I justdon't don't believe in that. You know,

(30:03):
if you didn't have the tax deductionfor the interest and the depreciation,
there would be no rental property.Nobody in their right mind would want to
be the landlord. I mean,you are a psychologist, You are a
home cleaner, You are a handyman. Not only do you have your own
house to maintain. Every time somethingbreaks, it's your job to go over
there and fix whatever it is.And it doesn't take a lot Like I

(30:26):
say, one lost month of rentwill kill your entire year's profit on that
property. Well, what's the otherbenefit of owning real estate? If you
take all these benefits away, theonly other one that's left is appreciating.
Yeah, is appreciation? Well yeah, either either principal pay down by so
forced appreciation and appreciation of the propertyvalue going higher. Their markets, a

(30:47):
lot of them in California where peoplehave for years, for decades, you
would buy real estate knowing you're goingto lose money on this from a from
a rental perspective, yes, youget the right off on your taxes,
but you're you're the reason why youhold it is because it's appreciating, right.
And actually, most coastal markets youcan take the United States of America,
you take a map and you startat Seattle, and you make a

(31:08):
big smiley on that map, andyou go all the way up to Maine.
The coastal areas are appreciation markets,with the exception of Mississippi and Alabama,
which are more cash flow markets.The middle part of the country you
can cash flow like crazy on rentalproperties, they just don't appreciate as much.
But the coastal areas where all thepeople are drawn because of the ocean,

(31:30):
and they are basically markets that youlose money on the property and you
refinance. Well, now with thehigher industrates, nobody's refinancing and they're bleeding
money every month. And the exodusfrom California, those home prices aren't going
to go higher much anymore, andthey've about capped out. You know,
the average home in San Jose,California, it's one point two million dollars

(31:51):
right right, right right. Therents less than four thousand, So it's
one third. I mean I talkedabout the one percent rule. This is
one third of one percent rule.So I mean it's a bleeder. Is
a bleeder? Okay? So coreLogic has found that institutional investors increased their
purchases at the height of the pandemicand have continued to purchase a significant chair

(32:13):
of single family homes. The NationalAssociation and Realtors said that institutional buyers bought
thirteen percent of the homes in twentytwenty one. During the pandemic, institutional
buyers were buying up all those propertieswith purchase rates as high as twenty eight
percent in Texas and nineteen percent inGeorgia sow In Texas, over a quarter
of the homes were purchased by institutionalinvestors. Wow, okay, I mean

(32:36):
that that number that statistics surprises mebecause that's how very very high percent it
is. It's like over a quarterof the inventory. So, now,
if they take away the incentives fromthem, and I agree with you,
if you're going to take something away, take it darning this day, moving
forward, don't go backward in time. Correct? Yes, So that would
you know, if that would killthe institutional investor buying up single family homes,

(32:57):
that would create more inventory going forThat's actually a good solution. It
just depends on how they implement thisor if you're going to take that away,
what can they give in return thatrewards that supplements for people that have
been doing this, that have beengenerating or owning real estate and buying real
estate for the last fifty hundred years. Sure, and what can they do?

(33:20):
So it's got to be there's gotto be that give and take.
If you're going to take that away, gives something to reward them so that
otherwise, because people are just goingto say forget about it and I'll just
sell the real estate and I'll gobuy stocks. Right. Specifically, this
is what they believe that this StopPredatory Investing Act will do. And I'm
going to go back and kind ofhighlight who created this act. John Fetterman,

(33:44):
congressman from Pennsylvania that had this stroke, Elizabeth Warren, Tammy Baldwin,
and Jack Read, Jeff Merkel,Tina Smith. I actually went out to
Washington, DC in twenty seventeen andgot to address the committee on by a
bill that was limiting the number ofhomes that you could finance as an individual.

(34:04):
But a lot of them are newplayers, and they came up with
this bill and this is what theythink it's going to do. They are
going to prohibit an investor who ownsor acquires fifty or more single family homes
from deducting the interests or the depreciationon their properties. So if you own
more than fifty homes, no moreinterest deduction, no more depreciation. I
have a prediction if this were toactually come through, and I hope it

(34:25):
does not, but if this wereto come together, there'll be a lot
of people that own forty nine homes. Yep. Exactly. They think it
will incentive buse big investors to sellthe single family homes back to homeowners or
nonprofits in the community. That's whatwould happen. And what will that do
to the value of the real estatemarket. Now you're flooding the market.

(34:45):
Everybody at the same time is goingto go sell off their massive rental inventory.
You get Blackstone selling offer American homesfor rent. They think it will
support affordable rental housing and the constructionof new housing supply. So affordable rent
housing, how do you think thatBecause you're taking away houses that were for
rent, you're limiting the supply.That's not going to be affordable rentals.

(35:07):
It's going to be higher rentals.Do you agree? I do, But
allowing owners to continue to take deductionsand properties that are financed using low income
housing tax credits or the newly constructedrental houses, so you know the subdivisions
you were talking about that we're builtfor the purpose of trickly renting. But
they're trying to push people into lowincome housing tax credits. So telling you

(35:30):
who you can rent your houses toin order to get the secret deductions and
the interest deduction. This is thebiggest infraction. I mean, we have
seen property owner rights just one littlestep at a time. Here's another one
they're going to step. This isa major step. They're going to tell
you who can who you can rentto in order to get the deduction.
And I know they say, well, oh, someone who owns more than

(35:52):
fifty properties, But there are alot of people, successful people that have
spent their life acquiring real estate overtime and hit that fifty unit mark.
And when you get homes paid offand you have the rent coming in,
you go buy another one, andbuy another one, and then you have
a property manager when you start gettingover I've kind of caught a limit at
one time. We in nineteen andit was about all I could do to

(36:14):
keep them rented and repaired and everything, and without a property manager. This
law, they believe will protect renterswho live in existing single family homes.
Yeah, and detecting the renter notthe owner. Yeah, it's just all
backwards. Hopefully this does not goanywhere, and it's a bill that will
get shot down very quickly. Butit's disturbing that we see some of these

(36:35):
bills that kind of rear its headand how it can affect ownership. They're
going to protect their renters in existingsingle family homes by not disallowing deduction.
So if you already have it,your grandfather did, I think is what
they're saying here, And this isjust something that was introduced, and again
I hope it does not go right, so Jerry. In twenty twenty one,
sixteen percent of the homes in Cleveland, Ohio were purchased by investors.

(36:57):
One zip code in Cincinnati had seventypercent of all the homes purchased by investors.
Anyway, this legislation represents a criticalstep and safeguarding the long term affordability
and stability of our communities, empoweringlocal governments to protect single family affordable housing
stock. We're coming up on abreak. This is Tucson Home Solutions on

(37:19):
K and ST. I'm Bob zachMeyer. I'll be back with Jerry Sunt
of Cross Country Mortgage. Good morning, and welcome back. I'm Bob zach
Meyer of XP Realty and I'm joinedby Jerry Sunt of Cross Country Mortgage,
and we are talking about some newsthat's interesting. There is a new bill
that came out. It hasn't passedyet, but it has been proposed on
This news article came out on Julyeighteenth legislation introduced to curb predatory practices in

(37:45):
the single family home market. Soit's I think that would be a little
miss it exactly. So predatory practice, what is that? That sounds like
somebody's preying on someone stealing your equityand taking advantage of a homeowner. It
sounds like, oh, they're goingafter wholesalers that have no intention of buying
that home and they're buying it forsixty cents on the dollar and turning around

(38:07):
making fifty thousand dollars on the sale. Sometimes they just stole all this person's
equity because they were uneducated. Thatis not what the bill is. The
Stop Predatory Investing Act would prohibit aninvestor who acquires fifty or more single family
rental homes from deducting the interest anddepreciation on those properties. He's just taken

(38:28):
out all of the mom and pops. Yeah, I mean that's not hedge
funds. Hedgehunds have more than fifty, but big investors and let's talk about
that, Jerry. So people thatcan't afford home, if there isn't a
rental property, then they're going tolive in a tent. Right, So
these people are the cleaner, becausemost of the time when someone vacates a

(38:50):
property, it needs to be rehabbed. They need to replace carpet, they
need to paint the So when someoneleaves, I mean you are over there
for a month, you've lost amonth of income. On most rental properties,
if you lose a month of income, you lost your profit for the
entire year. So the whole benefitfor owning that rental property is that you
can deduct it on taxes, youcan depreciate it, and you can offset

(39:12):
the rent with the interest that youpaid on the loan. Especially in today's
market, rents don't make sense into sound right now. I mean,
I was a landlord for thirty nineyears, and I used to buy properties,
and I could make the one percentrule all day long. Let's just
say it's one hundred thousand dollars propertyat that property rents for one percent a
month, which is one thousand dollars. I could find properties like that all

(39:32):
over the place. Well, rightnow, home in Tucson, you're hard
pressed to find a three hundred thousanddollars home. As a matter of fact,
in our market right now, wehave one hundred and fifty one houses
under three hundred thousand dollars one million, seventy thousand people and one hundred and
fifty one houses under three hundred thousand. So now you go buy this train

(39:52):
undred thousand dollars home. And let'ssay they get a loan from you,
and you require what twenty percent twentyfive percent, can get away with fifteen,
but then you're paying a lot ofpoints and fees and everything else,
and the rate and the mortgage insurancesis expensive. Okay, So twenty percent
down trainer a thousand dollars home,So that's sixty thousand, So you're going
to borrow two forty and then you'rerent it's going to be what sixteen hundred

(40:16):
dollars and you paid three hundred forthat house. I mean, you're looking
at a mortgage rate at seven anda half percent right there. Rightly,
the one percent rule doesn't even comeclose. I mean, you're going to
have a hard time cash flowing becausenot only do you have the mortgage,
which is just principal and interest,you've got the taxes, you've got the
insurance. In some cases, youhave hys, you always have repairs,

(40:36):
and you can count on vacancy atsome point you're not going to get any
and come off of that property.So when you factor all those things together,
even on a paid off home,the average landlord is lucky if they
get sixty five percent of the grossrent because there's all the other hands in
the cookie jar. You know,the tax man is in there, the
insurance agents in there, you know, everybody getting a piece of that.

(40:57):
So basically, it makes no senseto purchase a home at today's prices and
the people that have them now they'resaying you can't deduct them anymore. Will
that cause that landlord to sell thathouse? Yes? Will that free up
homes for sale for people that wantto buy that home and have a place
to live. Yes, it it'llsolve one problem, but it will cause
another. It's going to create ashortage of rental properties. Right, good

(41:21):
things about it. Yes, itwill create inventory because the homeowners that can't
deduct the interest or depreciate the propertyanymore are going to sell. I just
what I don't disturbs me about thisis that you're changing the rules of the
games. And again, the institutionalinvestors is one category, but the mom
and pops and you and I bothknow a good number of people in Tucson

(41:43):
that own fifty units, sure,and they were a good friend. It
was one hundred. And they havespent you know, years building their business
that way, being very strategic andbuilding an amazing portfolio. And to turn
around and change the game to saynow that that's not going to make any
money for you, because they're makingall their money from Yes, it's rent,
but then it's also that depreciation andbe able to write off the interest

(42:07):
is what makes it attractive, andit changes the rules halfway through. I
just don't don't believe in that.You know, if you didn't have the
tax deduction for the interest and thedepreciation, there would be no rental property.
Nobody in their right mind would wantto be the landlord. I mean,
you are a psychologist, You area home cleaner, you are a
handyman. Not only do you haveyour own house to maintain. Every time

(42:28):
something breaks, it's your job togo over there and fix whatever it is.
And it doesn't take a lot.Like I say, one lost month
of rent will kill your entire year'sprofit on that property. Well, what's
the other benefit of owning real estate? If you take all these benefits away,
The only other one that's left isappreciating. Yeah, is appreciation Well,
yeah, either either principal pay downby so forced appreciation and appreciation of

(42:52):
the property value going higher. Theirmarkets, a lot of them in California
where people have for years, fordecades, you would buy real estate knowing
you're gonna lose money on this froma rental perspective, yes, you get
the right off on your taxes,but you're the reason why you hold it
is because it's appreciating, right.And actually, most coastal markets you can
take the United States of America,you take a map and you start at

(43:15):
Seattle, and you make a bigsmiley on that map, and you go
all the way up to Maine.The coastal areas are appreciation markets, with
the exception of Mississippi and Alabama,which are more cash flow markets. The
middle part of the country, youcan cash flow like crazy on rental properties,
they just don't appreciate as much.But the coastal areas where all the

(43:36):
people are drawn because of the ocean, and they are basically markets that you
lose money on the property and yourefinance. Well, now with the higher
industrates, nobody's refinancing and they're bleedingmoney every month, and the exodus from
California, those home prices aren't goingto go higher much anymore, and they've
about capped out. You know,the average home in San Jose, California,

(43:57):
it's one point two million dollars rightright, the rents less than four
thousand, So it's one third.I mean I talked about the one percent
rule. This is one third ofone percent rule. So I mean it's
a bleeder. Is a bleeder?Okay. So core Logic has found that
institutional investors increased their purchases at theheight of the pandemic and have continued to

(44:19):
purchase a significant chair of single familyhomes. The National Association of Realtors said
that institutional buyers bought thirteen percent ofthe homes in twenty twenty one. During
the pandemic, institutional buyers were buyingup all those properties with purchase rates as
high as twenty eight percent in Texasand nineteen percent in Georgia. So in
Texas, over a quarter of thehomes were purchased by institutional investors. Wow,

(44:43):
okay, I mean that that numberof that statistics surprises me because that's
how very, very high percent itis. It's like over a quarter of
the inventory. So now if theytake away the incentives from them, and
I agree with you, if you'regoing to take something away, take it
darning this day moving forward, don'tgo backward in time. Correct. Yeah,
So that would you know, ifthey would kill the institutional investor buying

(45:04):
up single family homes, that wouldcreate more inventory going forward, that that's
actually a good solution. It justdepends on how they implement this or if
you're going to take that away,what can they give in return that rewards
that supplements for people that have beendoing this, that have been generating or
owning real estate and buying real estatefor the last fifty hundred years. Sure,

(45:25):
and what can they do? Soit's got to be there. There's
got to be that give and take. If you're going to take that away,
gives something to reward them, sothat otherwise because people are just going
to say forget about it and I'lljust sell the real estate and I'll go
buy stocks. Right. Specifically,this is what they believe that this Stop
Predatory Investing Act will do. AndI'm going to go back and kind of

(45:47):
highlight who created this act. JohnFetterman, Congressman from Pennsylvania that had this
stroke, Elizabeth Warren, Tammy Baldwin, and Jack Read, Jeff Merkel,
Tina Smith. I actually went outto Washington, DC in twenty seventeen and
got to address the committee about abill that was limiting the number of homes

(46:08):
that you could finance as an individual. But a lot of them are new
players, and they came up withthis bill, and this is what they
think it's going to do. Theyare going to prohibit an investor who owns
or acquires fifty or more single familyhomes from deducting the interests or the depreciation
on their properties. So if youown more than fifty homes, no more
interest deduction, no more depreciation.I have a prediction if this were to

(46:31):
actually come through, and I hopeit does not, but if this were
to come together, there'll be alot of people that own forty nine homes.
Yep, exactly. They think itwill incentivize big investors to sell the
single family homes back to homeowners ornonprofits in the community. That's what would
happen. And what will that doto the value of the real estate market.

(46:52):
Now you're flooding the market. Everybodyat the same time, is going
to go sell off their massive rentalinventory. You get Blackstone selling offer American
home for rent. They think itwill support affordable rental housing and the construction
of new housing supply. So affordablerental housing, how do you think that
Because you're taking away houses that werefor rent, you're limiting the supply.

(47:13):
It's not going to be affordable rentals, It's going to be higher rentals.
Do you agree? I do byallowing owners to continue to take deductions and
properties that are financed using low incomehousing tax credits or the newly constructed rental
houses, so you know the subdivisionsyou were talking about that we're built for
the purpose of tricking. But they'retrying to push people into low income housing

(47:37):
tax credits. So telling you whoyou can rent your houses to in order
to get the secret deductions and theinterest deduction, this is the biggest infraction.
I mean, we have seen propertyowner rights just one little step at
a time. Here's another one they'regoing to step. This is a major
step. They're going to tell youwho can who you can rent to in
order to get the deduction. AndI know they say, well, oh,

(47:59):
someone owns more than fifty properties butthere are a lot of people,
successful people that have spent their lifeacquiring real estate over time, and that
hit that fifty unit mark. Andwhen you get homes paid off and you
have the rent coming in, yougo buy another one, and buy another
one, and then you have aproperty manager when you start getting over.
I've kind of caught a limit Atone time. We had nineteen and it

(48:20):
was about all I could do tokeep them rented and repaired and everything without
a property manager. This law,they believe will protect renters who live in
existing single family homes. Yeah,intecting the renter, not the owner.
Yeah, it's just all backwards.Hopefully this does not go anywhere, and
it's a bill that will get shotdown very quickly. But it's disturbing that
that we see some of these billsthat kind of rear its head and how

(48:45):
it can affect ownership. They're goingto protect their renters in existing single family
homes by not disallowing deduction. Soif you already have it, your grandfather
did, I think is what they'resaying here. And this is just something
that was introduced and again I hopeit does not go right. So Jerry
in twenty twenty one, sixteen percentof the homes in Cleveland, Ohio were
purchased by investors. One zip codein Cincinnati had seventy percent of all the

(49:08):
homes purchased by investors. Anyway,this legislation represents a critical step and safeguarding
the long term affordability and stability ofour communities, empowering local governments to protect
single family affordable housing stock. Ifwe're coming up on a break, this
is Tucson Home Solutions on K andST. I'm Bob zach Meyer. I'll
be back with Jerry soon to crosscountry Mortgage